Debt-distressed African countries again look to IMF

International Monetary Fund

by AKANI CHAUKEJOHANNESBURG, (CAJ News) – BY the International Monetary Fund (IMF’s) own admission, there are circumstances where African governments’ debt levels are so high they become unsustainable, such that the scheduled debt service exceeds the capacity of the member to service it.

This rings true for a number of countries in the Sub-Saharan African
region, where the organisation, in its regional economic outlook for the year, warned debt servicing costs were becoming a burden, especially in oil-producing countries.

Among these are Angola, Gabon and Nigeria.

Overall, public debt rose above 50 percent of gross domestic product (GDP) in some 22 countries at the end of 2016, up from ten countries in 2013.

The rankings are based on public debt as a percentage of GDP. Cape Verde are the heaviest indebted, with its debt 129,7 percent of GDP. Sudan’s debt is 66,5 percent of GDP.

Recent statistics suggest Angola, Africa’s second largest crude oil
producer after Nigeria, is not far off. It has a government debt
equivalent to over 65 percent of the country’s GDP. Government debt to GDP in Angola averaged 49,75 percent from 2000 until 2017.

Statistics are based on data from the IMF’s World Economic Outlook, the World Bank’s World Development Indicators, and various countries’ national statistics offices and central banks.

IMF economists- Sean Hagan, Maurice Obstfel and Poul Thomsen- jointly blogged that one potent source of uncertainty is the role of a big debt overhang in sapping political support for reforms from the public, which could see its sacrifices as primarily benefiting creditors.

“Pretending that unpayable debts can be repaid will only sap the
effectiveness of the debtor’s adjustment efforts, ultimately making all parties lose more than if they had promptly faced the facts,” the trio stated.

On the back of its warnings that servicing debts were becoming burdensome, it is thus ironic that IMF is making a comeback to the African continent.

Countries with an insatiable appetite to borrow, but struggling to repay loans, are sourcing funds from the institution.

Economists pointed out after past few years of inactivity, largely because of increased Chinese funding to Africa, the IMF was back in the fold.

This is largely attributed to falling commodity prices and rising interest rates on loans are pushing several countries into unaffordable debt like that last seen in the 1980s and 1990s.

“Despite – or is it perhaps because of – increasing volumes of Chinese financing to Africa, that oft-reviled old banker, the IMF, is making a comeback to the continent,” stated Peter Fabricius, Consultant of the Institute for Security Studies (ISS).

He noted during the 1980s and 1990s debt crisis many African countries turned to the IMF and its Bretton Woods partner institution, the World Bank, for financial bailouts but the economic formula, including African countries opening their economies to international trade, liberalizing their currencies and drastically cutting costs in exchange for loans, did not address Africa’s economic woes.